The Servicemembers Civil Relief Act: An Introduction For Creditors

Northeast Florida has  some of the largest Naval bases in the country and many active duty military personnel call the area home. These service members faces stresses that those of  us in civilian life will likely never encounter, such as long deployments overseas, or a change of station to another base requiring them to move across the country or abroad. Due to the unique circumstances faced by the service members, Congress enacted the Servicemembers Civil Relief Act (“SCRA”) 2003. The SCRA served as an update to the Soldiers’ and Sailors Civil Relief Act of 1940. The overall goal of the SCRA is to ensure the military personnel do not experience adverse legal events, such as foreclosure or repossession, while the service member is serving their country.

Creditors should be aware of the SCRA and understand that there may be liability for not complying with the requirements of the SCRA. Violating the SCRA can create a private right of action for the service member.  Additionally, the United Stated Attorney General can bring a civil action against a lender or creditor who engages in a pattern of violating the SCRA.  In 2012 the nation’s largest mortgage servicers were sued by the United States and forty-nine states for violating the SCRA.  These servicers entered into a consent judgment whereby the servicers agreed to, among other things, pay almost $117,000 to each service member who lost property through an improper foreclosure.

Who and What Is Covered Under the SCRA?

The SCRA protects active duty members of the Army, Navy, Air Force, Marine Corps, or Coast Guard.  The SCRA also protects members of the National Guard who are ordered to deploy or who are responding to a national emergency.

Under the SCRA, military personnel are entitled a cap on interest on debts incurred prior to entering service at 6% per annum.  After receiving notice of the service member’s status and a request for a reduction of interest, the creditor must forgive any interest that is due for a rate that is higher than 6% and readjust the interest rate going forward.

Next, service members are protected from default judgments.  For creditors and lenders this is important in any lawsuit to collect on delinquent debt or to foreclose on property.  If it appears that a defendant might be a service member, and the defendant has not made an appearance, then a default may not be entered without the appointment of an attorney ad litem to represent the service member’s interest in the lawsuit.

Additionally, the SCRA prohibits “self-help” repossession of vehicles and other items of personal property.  So long as the loan or lease for the vehicle was originated during the service member’s period of military service, or, if the service member made at  least one payment prior to entering service, then the creditor must obtain a court order prior to repossession of the property.

The SCRA also provides protections in non-judicial foreclosures, a process that is allowed in other states, but not Florida.  Further, the SCRA also allows service members to break leases for apartments or other rental property, if the service member is being deployed or being sent to a new posting.

How to Ensure Compliance with the SCRA

  1. Check the Status of the Debtor Before Filing Suit

Prior to referring a matter to an attorney, creditors may try to work with a debtor to bring the loan back into performance.  If the creditor is able to connect with the debtor, and the creditor learns that the debtor is a member of the military, or will soon be a member of the military, a note should be made that the particular loan requires special treatment.  Even if the debt is not brought back to performance, this “heads-up” to other individuals in the process will help to ensure that no one runs  afoul of the SCRA.

Next, if it is unclear whether the debtor is an active duty member of the military, a free search can be conducted on a website run by the Department of Defense, linked here.   The search will require information such as a birthdate or Social Security number.  Loan origination or credit application documents should supply the necessary information needed to complete this search.  Should the creditor require the assistance of legal counsel to collect on a debt, the creditor may wish to advise their counsel of the birth date or Social Security number of the debtor, so that the attorney may complete the search.

  1. File an Affidavit with the Court

If a lawsuit is filed and the defendant does not appear, before a final judgment after default in favor of the creditor can issue, the creditor should file an affidavit stating whether or not the defendant is an active duty military personal, or if the same could not be determined.  If the creditor has a Social Security number of the debtor, the creditor should be able to determine whether or not the defendant is in the military.  A creditor might not be able to determine if a debtor is in the military if the creditor does not know the debtor’s date of birth, or, if the date of birth is known, but the debtor’s name is a common one.  If the creditor is unsure of the debtor’s status as military personnel, the affidavit provided to the court should explain any circumstances which could help apprise the court of whether the debtor is a member of the armed services.

Florida courts generally will enter a final judgment against a defaulted debtor without the submission of an affidavit of regarding the defendant’s military status.  Some Florida courts have forms and other administrative orders that incorporate requirements for an SCRA affidavit, but this is not consistent throughout the state.  As a best practice, and to comply with the SCRA, an affidavit should be filed stating the status of the defendant.  To the extent that an affidavit is not filed, this error may be harmless, provided that the debtor is not protected under the SCRA.

If a defaulted defendant is a member of the military, the creditor’s counsel should move the court to appoint an attorney ad litem.  Although the creditor is not required to make this application and the SCRA states that it is the duty of the court to make this appointment, courts are unlikely to notice these issues on their own accord due to the size of their dockets.  The attorney ad litem will seek to locate the service member and take action to defend the service member’s interest.

  1. Stay of Action or Vacate Judgment

If an action is brought against a service member for collection of a debt, and the service member defendant has defaulted or appeared in the action, the Court is required to grant a stay of at least 90 days upon the court’s own motion or the motion of the defendant.  This stay is put in place to give the defendant some breathing room to defend against the action.  The SCRA also provides that in the event of a final default judgment against a service member, the service member can move to vacate the judgement for 60 days after entry of the judgment if the service member can show that the reason for default was related to their service (for instances, the service member was deployed overseas), or that they have a meritorious defense to the action. If a creditor determines that there was some non-compliance with the SCRA prior to the entry of final judgment, the creditor may want to agree to a vacatuer of the final judgment in order to avoid liability for a private cause of action under the SCRA.

In the context of debt incurred with a mortgage, creditors should be aware that a foreclosure action can be stayed for as long as “justice and equity require,” if the court determines that the service member’s ability to comply with the mortgage is or was affected by military service.  In such circumstances, a creditor should ask the Court for regular case management conferences to periodically reassess is the stay is necessary.

  1. Waiver of Rights

An active duty service member may waive the rights and protections of the SCRA for debt incurred while the service member is in military service.  This waiver of rights needs to be prominently displayed in at least 12 point type on whatever agreement the service member is signing.   To the extent this waiver applies, the creditor should mention the same in their complaint to collect on the debt in order to demonstrate that any defense or action based on the SCRA is not applicable.

Conclusion

The SCRA is designed to protect the people that protect people. Compliance with the SCRA is easily accomplished by communicating with the debtor and through free verification provided by the Department of Defense.  If a creditor routinely runs afoul of the SCRA, they may face civil action by the U.S. government, or a service member can sue the creditor for damages incurred due to the violation.  During an action to collect, the creditor will need to take small steps to ensure that there is compliance with the SCRA and can easily avoid running afoul of the SCRA’s requirements.

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